I had read that some potential solutions to this were:
* spend down the entire HSA account to zero
Not something I'm ready to do, although not in a high deductible medical plan since 2019 (the date of the excess contribution) , I'm still letting it accumulate until needed in later years
* rejoin a high deductible plan
Not possible as our current retiree plans do not offer a high deductible plan
* make a unqualified distribution
This is the option I would like to execute but it seems problematic. Fidelity won't process it as an excess contribution withdrawal, so the resulting 1099-SA will have an incorrect distribution code reported. I'm not sure what happens if I do this, letting the 1099-SA indicate distribution code of 1 (normal withdrawal) but try to correct that when filing taxes. Unclear if 1099-SA is reported to IRS and if they cross-check against the return.
I did find that for calculating the earnings attributable to the excess contribution one is to follow CFR 1.408-11. The calculation used for returned or re-characterized IRA contributions.
Thus, I can determine the correct values that would belong in box 1 (gross distribution) and box 2(earnings on excess cont) and box 3 (distribution code - 2 for excess contribution) --- but this would not match what Fidelity wants to create as they only seem firm they can't process an excess contribution withdrawal for me.
